China strives to be self-sufficient in the face of fear of isolation

China is trying to strengthen the resilience of its economy, in order to prevent the risk of isolation like what the West is doing with Russia.

China has recently invested billions of dollars in semiconductor technology, increased grain and oil reserves, and established international linkages for its financial system. These moves stem from the fear of being isolated from the Western economy by heavy sanctions like the way the US and the European Union (EU) are imposing on Russia, according to James T. Areddy, normally ‘s veteran commentator on China affairs WSJ.

As the Ukraine crisis heats up and the US-China trade war continues, Beijing could face many sanctions in the event of an increase in confrontation with Washington, possibly over Taiwan. or if China demonstrates significant support for Russia in its campaign in Ukraine.

“China has realized that the West when confronting Russia has taken bold steps and presented itself as a united front,” said Eswar Prasad, a professor of trade policy at Cornell University in the US, said. .

Chinese President Xi Jinping at an event in Beijing, China in October 2021.  Photo: Reuters.

Chinese President Xi Jinping at an event in Beijing, China in October 2021. Image: Reuters.

China’s economy is much larger than Russia’s, so it will be harder to isolate. However, Professor Prasad said that from what is happening in Europe, China may have realized that it is still vulnerable to the financial, economic and technological sanctions of the West. West.

During Mr. Xi’s tenure, three US presidential administrations have successively introduced sanctions against Beijing, including bans targeting Huawei and companies accused of having ties to China. with the Chinese army. Each such move seems to spur China to seek self-reliance.

The day after Russia launched its military operation in Ukraine, People‚Äôs Daily, The mouthpiece of the Communist Party of China, published an editorial saying that “independence and self-reliance ensure that the cause of the party and the people will win one victory after another”.

Global Times, The People’s Daily newspaper, published in March, said that China’s advantage is having a large-scale production.

China supplies a third of the world’s textiles, more than 27% of electronics and nearly 20% of machinery, according to data from Harvard’s Center for International Development. China is also pretty much the sole exporter of rare earths for products ranging from night vision goggles to electric vehicle batteries.

Attempts to isolate China as with Russia will not be easy for the US economy. The American Chamber of Commerce and the Rhodium Group released a report last year estimating that if the US gave up half of its investments in China, US companies could lose $25 billion in annual profits, including aviation, chemicals and The health sector has been particularly hard hit. US GDP could also lose about $500 billion.

Wang Wen, director of the Chongyang Institute for Financial Studies at Renmin University of China in Beijing, argues that it will be difficult for the West to make a multilateral effort to increase pressure on an economy 10 times the size. Russian times. According to Wang, China will overcome the challenge if isolated by the West, just like it did during the trade war with the administration of former President Donald Trump.

A chip production line in Nanchang, China.  Photo: Zuma Press.

A chip production line in Nanchang, China. Image: Zuma Press.

China has long worked to strengthen its self-reliance. Mr. Xi has recently frequently used the term “self-reliance” in the Mao era to describe China’s core defense strategy.

“Xi Jinping’s version of self-reliance is certainly more focused on domestic production and technology than we’ve seen from previous leaders,” said Neil Thomas, the company’s regional analyst. political consultant Eurasia Group in the US, said.

As tensions over Ukraine pushed grain prices up, Mr. Xi promoted calls for self-reliance in food production. “Who will feed China? China needs to be self-sufficient and help itself,” he told parliamentarians in Beijing in March.

As the world’s largest trading nation, in order to increase its self-reliance, China must find alternatives to imported goods, or create a reliable supply chain.

China’s largest import order is crude oil, with 70% of its needs imported from abroad. The main oil supplies for China are countries in the Middle East and Africa, which have benefited from the financial and political support of both China and Russia.

To protect oil supplies, China has for years poured money to help poor but resource-rich countries build seaports and railways under the Belt and Road initiative.

However, Derek Scissors, a fellow at the American Enterprise Institute, said such infrastructure projects only provide Beijing with limited assurance if the US imposes heavy sanctions.

In the event that the US decides to sanction Chinese banks as it did with a series of Russian banks, oil exporting countries will face the choice of stopping doing business with Beijing, or being cut off from the source of USD. which they desperately need to trade. “In such a dire scenario, most of the Belt and Road would peel off,” Scissors said.

According to experts, the dollar is the weapon that makes US sanctions effective.

In theory, China is a very rich country, having accumulated $3.2 trillion in foreign exchange reserves. But if tensions escalate with the US, many question how much of it China can access, after seeing the US and its allies freeze about half of Russia’s more than $600 billion in reserves.

To avoid the scenario of being excluded from SWIFT, a USD-based international financial transaction system, the People’s Bank of China has been working on building its own cross-border interbank payment system. China is also working with central banks to make the digital version of the yuan more widely accepted.

However, analysts say that China’s parallel financial system has not been used widely enough to be considered a viable solution in the event of a need to escape US sanctions.

China is also looking to increase connections with foreign businesses investing in the territory, to avoid the scenario of a massive investment withdrawal under US pressure.

After Russia launched the campaign in Ukraine, hundreds of multinational businesses from fast food chains, car manufacturers, oil companies to banks all announced that they would partially or completely withdraw from Russia. But the connection with the Chinese market of many multinational enterprises is much deeper.

US President Donald Trump in 2019 called for US companies to withdraw their business activities in China and move factories to the US. However, a recent study by the Paulson Institute found that pressure from the Trump administration did not make much of a real difference.

While the US share of equipment imports from China has fallen from 42% in 2018 to 32% in 2021, the study shows that this is mainly due to China abandoning low-value-added assembly activities.

China has also strengthened its legal defenses against economic pressures from abroad. One of them is the anti-foreign sanctions law, which is intended to provide a legal basis for retaliation against individuals or companies that harm China’s national interests.

However, high technology such as semiconductors may be the biggest weakness of China’s “economic fortress”, as the country is still heavily dependent on the US. Since a quarter of China’s technology exports depend on imported components from abroad, the impact on the Chinese economy will be three times worse than the effects suffered by the US and EU. when cut off from the domestic market, according to Innes McFee, a researcher at Oxford Economics in the UK.

China is fully capable of producing its own solar cells or electric vehicle batteries, but the country is still dependent on foreign countries for advanced technologies such as the production of jet engines for aircraft or the software that operates equipment. semiconductor manufacturing, said Dan Wang, technology analyst at Gavekal Dragonomics. “China is not an impregnable fortress,” Dan said.

Thanh Tam (Theo WSJ)

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